BetonSports, the London-listed online gambling group, is accused of being at the hub of a multibillion-dollar illegal gambling operation, according to a grand jury indictment detailing a raft of Wire Act, racketeering, conspiracy, fraud and tax evasion charges.

The details were released yesterday after FBI agents swooped on a Texas airport on Sunday night to seize the British chief executive, David Carruthers, who was moving between the UK and the BetonSports base in Costa Rica.

The 22-count indictment marks the start of a battle that has been brewing for years. In the US there is an uneasy coalition of anti-gambling campaigners, self-interested lottery and racetrack operators and Department of Justice prosecutors, all of whom vehemently hold that internet betting is an illegal activity on their side of the Atlantic.

In Britain, online sports betting, poker and casino operators have been drawn to the London Stock Exchange where investors have been delighted to share in spoils from the explosive growth in US internet wagers, regardless of their questionable legal status.

The two sides are braced for a courtroom showdown after the Missouri grand jury indictment outlined a range of offences - from those under the RICO (or racketeer influenced and corrupt organisations) Act, passed in the 1960s to end Mafia activity, to tax evasion - that prosecutors will pursue against "rogue" overseas operators.

Eleven individuals are charged, along with BetonSports and three other firms said to be linked to the company.

Central to the allegations is Gary Kaplan, who prosecutors believe has been running illegal bookmaking operations in the US "at least since 1992". These operations are said to have taken more than $3.3bn (£1.8bn) in bets from the US, and the justice department is seeking forfeiture of $4.5bn. Mr Kaplan, a US citizen, lives in Costa Rica, where BetonSports' main operations are based. The justice department has issued a warrant for his arrest. He holds a 15% stake in the company after cashing in a further 29% interest for £29m last summer.

One of the world's biggest offshore gambling magnates, Mr Kaplan has done business from Costa Rica since 1998. He is accompanied everywhere by bodyguards. BetonSports has seven floors in the Mall San Pedro, in San José. At peak times, such as at Super Bowl weekends, it employs 2,000 people.

Mr Carruthers is now in custody in Fort Worth, Texas, following his arrest by FBI officers as he changed planes at a US airport in transit between Britain - where he has a home in Bromsgrove, Worcestershire - and Costa Rica. Mr Kaplan's brother, Neil Kaplan, is in custody in Fort Pierce, Florida. Three others have been arrested or are in custody, and warrants have been issued for the remaining defendants.

Trading in BetonSports shares was suspended on the Aim market yesterday morning at the request of the company, but the repercussions of its woes were felt across the gambling sector. Online gaming has profits of $12bn in Britain, half of which comes from the US. This case raises doubts over the entire industry and the sector's shares tumbled yesterday. The much larger firm Sportingbet closed down more than 35% at 182p. Other online gambling groups with strong US exposure but no sports betting were also hit, though not as severely. PartyGaming was down 17% at 85.25p, and 888.com fell 12% to 168.5p. William Hill stopped taking sports bets from the US more than four years ago, but still accepts poker and casino bets. Ladbrokes is reviewing its longstanding policy of refusing all wagers from the US. Both of those companies lost just over 1% on their shares yesterday.

A small number of operators privately said they would be reviewing policy on whether to let directors travel to the US, depending on the developments with BetonSports. The justice department said it would be seeking extradition for all the defendants in the BetonSports case. But lawyers have said it might face difficulties in Costa Rica and the UK where taking online bets is not an offence.

The department has consistently said it believes both online sports bets and online gaming activities are illegal under the Wire Act, the wording of which prohibits bets on "sporting events or contests".

The small print of BetonSports' paperwork, sent to all investors who backed the company when it floated on the stock exchange two years ago, states: "At least some of the group's activities are illegal under US law."

But investors piled into the stock as the stellar profit projections appeared set to follow the path of many other online gambling firms. The global market for internet gambling was set to almost double in two years, they heard. Yesterday's wider indictment goes back to 1993. The charges also make clear the FBI regards some bookmaking firms linked to Mr Kaplan to be part of an evolving enterprise. It says that the latest incarnation is BetonSports plc, which is operating out of Costa Rica and Antigua and listed on the London exchange.

The justice department indictment claims Mr Kaplan was the "founder and primary operator of BetonSports.com", though he had never sat on the board of the public company. Investors know Mr Carruthers as the man in charge of the business, a person who has been a vocal campaigner for the US government to accept online sports books as a fact of life, better regulated than outlawed.

Mr Carruthers was catapulted into the high-growth world of international internet gambling, at Mr Kaplan's side, six years ago, when he left his job as area operations manager of 40 Ladbrokes betting shops in the Midlands after 24 years at the company. In the four years before BetonSports' flotation, he saw profits grow by more than 35% a year.

One of the peculiarities of BetonSports is that it has operated widely advertised, free-toll telephone services for US customers, linking them to the group's website. This has allowed it to reach more customers, but lawyers suggest the practice may have made it a sitting duck for US prosecutors bent on demonstrating they can combat internet gambling.

Several offshore gaming firms claim it is legitimate to use phones to "assist" in online betting, American customers not placing wagers themselves but merely providing money assisting someone in Costa Rica to put down the bet. Under the Wire Act it is a federal offence to use an inter-state communication to place a wager on a sporting event. It remains a matter of dispute whether internet communications with computer servers based overseas are illegal - though the justice department insists they are outlawed.

Lawrence Walters, a Florida lawyer, said prosecutors appeared to be targeting BetonSports as a test case: "This case is going to be watched very carefully. It is going to set a precedent for an entire multibillion-dollar industry."

Winners

The online gambling industry has produced rich returns for those prepared to invest in a business regarded as illegal by law enforcement authorities in the US - where the industry generates half its estimated $12bn (£6.5bn) earnings. The justice department has begun to flex its muscles, but some entrepreneurs have already cashed in their shares.

In June, PartyGaming founders Anurag Dikshit, Vikrant Bhargava, Russ DeLeon and his wife, the former porn baroness Ruth Parasol, sold 5% of the business for £230m, adding to riches they amassed when the group floated last year. DBS Advisors, an anonymous shareholding group, last year offloaded a 5.8% stake in Sportingbet for £55.4m. DBS founded SportsBook, a US business acquired by Sportingbet five years ago in exchange for shares.

Last November DBS again appeared on Sportingbet's share register after exercising a right to convert a loan note into shares representing 20% of equity. Gary Kaplan, founder of BetonSports, is believed to be linked to Millennium Group, which gained £8.2m when the business floated two years ago.